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Biotech Investing is Hot Yet Only One In Six Were Profitable in 2020

The Economist August 14th 2021 pp50-51 |Business|Biotechnology|”Just what the doctor ordered” “The promise of clever new drugs-and the firms developing them”

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Since 2010 the Nasdaq Biotechnology Index has outpaced the S&P 500 reaching a relative index of more than 600 versus 400. During the same timeframe venture-capital funding has risen consistently at $5B in 2010, $10B in 2015 and $25B in 2020 and $20B so far through July 2021. Notably Moderna, famous now for its COVID-19 mRNA vaccine, and others like Pfizer and BioN-Tech (Germany) have helped fuel the recent surge of VC and equity investment by saving “millions of lives.”

Much of the growth has been centered “on Cambridge, home to Harvard University and MIT”. The area is “filled with cranes and new buildings, dull on the outside but bursting with exciting science within.” Prices for laboratory space are likely the most expensive commercial real estate in America at $160/sq.ft. The surge is reportedly explained in part by a drive to invest in “philanthropic capitalism”...other reasons are more hard-headed.” Nearly two-thirds of drugs now in late-stage development are being advanced in “youngish biotech companies built around novel technology rather than by big pharma firms.” The latter are more likely to partner or acquire the newer firms “to juice up [their] development pipelines.”

Areas of research concentration now are therapeutics for cancer, for autoimmune disease, for brain disorders and for infectious disease. “Everyone is vying to be the next Moderna, whose market capitalization jumped from $5B at it’s 2018 IPO to $156B now.” All want to follow the same model of being able to develop and manufacture new drugs. The enthusiasm is understandable but neglects the difficulty in creating successful therapies and therefore the inherent investment risk. Many ideas hit the funnel for development but few make it through the expensive process of bringing a drug to market. Government and private payers are then outraged by the high price of these successful products borne on the efforts of Ph.D.s, M.D.s, managers and very expensive biomedical infrastructure. In reality too only “one in six firms in the Nasdaq Biotech” turned a profit in 2020. The rest or every 6 in 6 lost “a combined $33B.”


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